What You Don’t Know About Financial Aid (but Should)

PAPER TRAVAIL Marilyn Ferreira and her daughter Kelsey make their way through the financial aid thicket.Credit
Gretchen Ertl for The New York Times

Marilyn Ferreira has solved her share of financial puzzles — running a business, buying a home and arranging a mortgage, raising six children as a single mother. But none of that compared to the challenge of understanding the cost of sending her brood to college.

She and her daughter Kelsey are in the thick of it now, weighing Kelsey’s admissions and financial aid offers from various colleges before the May 1 deadline, trying to make meaningful comparisons and just hoping they aren’t blindsided by something they missed. She has an important advantage in making sense of the terminology and the numbers: a lot of experience, with two sons now in college and a daughter already graduated.

“But it’s still confusing to me, probably the most confusing thing I’ve had to deal with,” said Ms. Ferreira, 48, a dance instructor who lives midway between Boston and Providence, R.I. “I couldn’t have figured it out on my own the first time, and I’m still not sure I could.”

It becomes clear over a long conversation that she does not understand how colleges define basic, crucial terms like “need,” “aid” or “need-blind admission,” and she does not know that those definitions vary from place to place. Her confusion is distressingly common, as demonstrated in studies, surveys and interviews with students and parents.

An array of policy analysts from think tanks to the White House say things should change. “It’s a ridiculously complicated system, if you can even call it a system, and a lot of people don’t get it,” said Sandy Baum, a research professor at George Washington University’s graduate education school, a senior fellow at the Urban Institute and a leading expert on college pricing. “If you put five aid offers from different colleges together, they’re all different, and it’s very, very difficult to compare. That problem could be solved.”

In fact, consumers have more tools than ever to decipher college prices and financial aid. College websites are required by law to have net-price calculators, to help people estimate what they would really pay, rather than relying on inflated sticker prices. The government’s own College Navigator provides a range of information on each institution, including costs. And the Obama administration’s financial aid “shopping sheet” aims to let people make apples-to-apples comparisons among colleges, just by using consistent definitions.

But the price calculators, potentially powerful instruments, vary in thoroughness, ease of use and even accuracy, and most colleges do not use the shopping sheet, which is voluntary. Not only could the tools be better, but many students and parents are unaware of them.

Senator Al Franken, a Minnesota Democrat, has introduced a bill that would require colleges to use a uniform financial aid letter, and he plans to introduce another to make the net-price calculators uniform and simpler. Both changes would allow applicants to compare real prices and aid offers in exactly the same terms, but even that might not be enough, Mr. Franken said, because those terms can still be unclear.

“You talk to students, and it’s a very common refrain that they didn’t really understand what they were getting into,” he said. “They can’t discern this stuff, and if they can’t, that’s saying something.”

Where Colleges Get Those Numbers

“I literally cried for three days when we got that first financial aid offer,” said Barbara Constable of Richmond, Va. “I was in such shock, it took me three days to regain my composure and call them and say, ‘How are we supposed to afford this? You must be kidding.’ ”

When their oldest son applied to college three years ago, Ms. Constable and her husband, both college-educated themselves, had a pretty clear idea of what they could afford, and it wasn’t much. He is a pastor, she works part time as an administrative assistant in a school, and they have four children. But when a college sent them a financial aid letter, its calculation of what they could pay was at least $10,000 more than their own estimate, so the family has borrowed much more money than they had intended. Now, with two children in college, she said, if her family paid what the schools say they can afford, they would be living on about $34,000 a year.

With the income, assets and expenses that a family reports on the Free Application for Federal Student Aid, or Fafsa, the Department of Education determines how much a family should be able to contribute to college. That, in turn, determines whether a student qualifies for low-income federal programs like Pell grants and subsidized student loans. But most consumers do not realize that colleges are free to come up with their own ways of defining a family’s ability to pay.

Most colleges stick largely to the Fafsa formula. But hundreds of private colleges require another form, the CSS/Financial Aid Profile, and use a related formula created by the College Board, the nonprofit organization that administers the SAT and Advanced Placement tests. Many colleges blend the federal and College Board methods, tweaking them as they see fit, or simply add their own factors to the mix. The result is that comparable colleges can reach very different conclusions, and they do not make those formulas public.

A crunch of government data available online provides a reading on what colleges are demanding. Parents making about $60,000, a little above the national median, are often paying more than 20 percent of earnings. A family making between $100,000 and $200,000 may consider itself far from wealthy, but is often paying nearly half of each additional dollar it earns.

Colleges typically want, in addition to a share of parents’ incomes, about 5 percent of the value of their assets, plus 20 to 25 percent of the students’ (Penn settles for just 5 percent of student assets). But there are differences in how colleges define assets. Cornell, Stanford, Columbia and Duke, for example, take into account home equity. Harvard and Princeton do not, and neither does the federal formula. New Yorkers might fare better with one of the elite private colleges, nearly all of which consider regional variations in cost of living. High medical expenses and kids in prep school? A few top schools, like Princeton, discount for both. The federal government and state colleges do not.

Joe Bagnoli has seen price shock from both sides — as a parent and now as dean of admission and financial aid at Grinnell College in Iowa. When his oldest child received aid letters from colleges, he said, “My reaction was: I just don’t have this kind of money.” This year, with two children in college, he borrowed $19,000 to come up with the parental contributions. He said some parents have trouble accepting the sacrifice involved in paying for college but stressed the immense long-term benefits.

“I have to think about whether the portion of the cost that’s assigned to me is commensurate with the return on investment,” he said.

This year, Grinnell changed its methodology, adding College Board variables to the federal formula. The new approach gives a more complete and fairer picture, he said, with some families judged to have much more need, others much less. Schools share the concern about divergent calculations and definitions, he said, and a group of need-blind colleges, called the 568 Presidents’ Group (after Section 568 of the Improving America’s Schools Act), compare notes and try to minimize differences.

But even within the group, colleges want the freedom to go their own way.

Precise comparisons among colleges are impossible, but the government’s vast database and net-price calculators provide a rough idea. Even within the rarefied group of highly competitive elites — with similar tuition and a vow to meet a student’s full financial need — what families pay varies widely. The database shows, for example, that for freshmen starting college in 2011, families earning $48,000 or less paid, on average, less than $5,000 a year at Harvard, Duke, the California Institute of Technology and the Massachusetts Institute of Technology, but more than three times that much at Boston College, the University of Southern California and Washington and Lee. For families in the $75,000 to $110,000 income bracket, Harvard families averaged less than $12,000; Northwestern, Oberlin and Tufts wanted more than twice as much.

The wealthiest colleges, of course, are the most generous across the board; Princeton, Harvard, Yale, Columbia and Stanford give need-based aid to families making more than $200,000.

None of this is obvious to the people who need the information most, like Will Damman and Abeer Syedah, freshmen at the University of Minnesota, Twin Cities. Both say they were intimidated by the high sticker prices of private colleges, but now wonder if they might have been able to shop around for a better deal.

“Seriously, everybody doesn’t just use the same definition of need?” said Mr. Damman, who comes from a small town north of Minneapolis. “I had no idea.”

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STICKER SHOCKED Will Damman and Abeer Syedah, freshmen at the University of Minnesota, Twin Cities, say they were intimidated by the high prices of private colleges.Credit
Jenn Ackerman for The New York Times

How Blind Is Need-Blind Admissions?

Since the Great Recession, the list of colleges that have eliminated need-blind admissions has grown ever longer. Reed, Wesleyan, Tufts, Colby, Agnes Scott and, in February, Clark University are among those that no longer make all of their admissions decisions without looking at financial information, and a family’s ability to pay.

In light of mounting financial pressures, the change in status is no surprise. Colleges face rising expenses, and many endowments remain below pre-recession peaks. They recruit among a population that, struggling with unemployment and stagnant family budgets, requires more and more financial aid — 29 percent more in the last four years, in Clark’s case.

“Unless we make some changes in how we approach admissions and financial aid, we would face a variety of negative choices, ranging from large tuition increases to cuts in critical programs to decreases in financial aid for enrolling students,” Clark’s president, David P. Angel, told students and staff in announcing the end of a need-blind policy. Enrolling low-income students and ensuring they can afford the education is a balance, he said, that “is now under great stress — not just at Clark, but across the majority of colleges and universities in this country.”

The move away from need-blind admissions, however, has provoked reactions ranging from resignation to worry to outright anger. At Clark, students and alumni protested outside the admissions office. The student newspaper asked, “Is Clark becoming elitist?”

Wesleyan’s similar announcement in 2012 was greeted by large demonstrations — students barged into a closed-door trustees meeting — and heated confrontations with Michael S. Roth, the president. Dr. Roth said administrators had agonized over the decision but saw no other way forward. Last year, in the first admissions cycle at Wesleyan under the new need-aware policy, about 90 percent of the class was admitted need- blind.

Some colleges prefer the term “need-sensitive,” to indicate they decide on most of their admissions offers need-blind. If the numbers add up to a healthy financial year, they will admit more students need-blind; if not, they will consider need when filling remaining slots. A need-aware college might actually admit more students without considering financials than one that is need-blind.

Indeed, the seemingly simple definitions conceal a world of complexity, conflicting meanings and even obfuscation.

“The term ‘need-blind admission’ has no official definition,” said Rachel Fishman, an education policy analyst at the New America Foundation. “It’s not in law anywhere. It’s just a mantle that the schools put on themselves.”

It is a mantle colleges cherish, a label that they hope shows them to be egalitarian, elite but not too elitist, and they give it up with great reluctance. In October, George Washington University stopped calling itself need-blind, acknowledging that it really had not been for several years. Most private colleges that call themselves need-blind do not extend that policy to international students, and many, including elites like Middlebury and Barnard, don’t apply the policy to students who transfer in from other colleges or to applicants from their waiting lists.

Experts say there are other ways to undercut what is, on paper, a strongly need-blind policy, though colleges strenuously deny doing so. Ms. Fishman insists that some skew their applicant pools by sending recruiters primarily to affluent neighborhoods. And, she said, “just by looking at a student’s application — what high school they go to, what community they’re from — you can make a pretty good guess about how well off they are.”

In addition, the Common Application used by more than 500 colleges asks prospective students to check a box if they intend to apply for financial aid. Some independent admission consultants advise students not to check it — to wait until they are admitted before giving the college any hint they will ask for aid.

“If you’re in that big pile of applications from kids who aren’t truly needy, who aren’t going to improve their socioeconomic diversity, who don’t have a particular talent they want, then, yeah, I think it can hinder your application to check that box,” said Victoria Goldman, an author and education consultant based in Manhattan. “I think it’s a middle-class problem.”

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GETTING ORGANIZED Ms. Ferreira calls financial aid "probably the most confusing thing I’ve had to deal with."Credit
Gretchen Ertl for The New York Times

Mark Kantrowitz, a nationally recognized expert on college financing and publisher of Edvisors, is skeptical when colleges claim to be need-blind in choosing from waiting lists. “For some of them, I strongly suspect, from anecdotal information, that it isn’t really true, but it’s very hard to prove.” He added: “A lot of these schools are just a lot less need-blind than they claim to be. I think there’s a lot of dishonesty in using that term.”

The promise of need-blind admission, no matter how genuine, usually has an even more profound drawback: Many colleges accept students who can pay only a fraction of the price, but most do not guarantee enough aid to make up the difference.

The practice — “gapping” or, more bluntly, “admit-deny” — comes as a surprise to students who think that need-blind admission has something to do with providing financial aid. If a college calculates that a student’s need (price minus ability to pay equals need) is $30,000, it might offer only $15,000 in an aid package, leaving families with difficult choices — to make up the rest with private bank loans, go to a less expensive school, or even postpone education.

“It turns need-blind into a hollow promise,” said Morton O. Schapiro, president of Northwestern University and an economist specializing in higher education finance.

Colleges that have dropped need-blind policies “do it for exactly this reason,” Dr. Baum of George Washington University said. “They don’t want to admit people and then tell them, ‘Oh, we can’t give you enough aid to come here.’ But that’s exactly what a number of schools do.”

College of the Holy Cross says it meets full need for 90 percent of its freshmen with financial need. Carnegie Mellon and Babson provide all the aid for fewer than half the students who, it has determined, need it. Only about 60 colleges in the country promise to meet the full need of all undergraduates, according to a survey by U.S. News & World Report, and about 45 of those also claim to have need-blind admission. Almost all are among the nation’s most prestigious schools. All are private on the list except one, the University of North Carolina, Chapel Hill. (The University of Virginia wasn’t included but also says it covers full need.)

Many students and parents don’t realize that schools with the most vaunted reputations can be the cheapest to attend. A landmark 2012 study found that many high-achieving, low-income students do not apply to selective colleges because they consider them unaffordable.

Are Loans and Jobs Really an Award?

Perhaps most fraught with misunderstanding is the term “financial aid” itself. A need-based offer might include a Pell grant (capped at $5,645 this year), a grant directly from the college, a federal work-study job and, making up a majority of the package, assorted loans.

“I never really understood what it meant when they said they meet 90 percent of need or 97 percent of need,” said Ms. Syedah, who grew up in the Twin Cities, the daughter of Pakistani immigrants. “And then when I got my financial aid packages, I was so disheartened to see that when they said ‘aid,’ a lot of it was really loans.”

Adding to the confusion, colleges and the government label some federally subsidized loans as aid but not others, and not private borrowing. In addition, colleges find part-time work-study jobs for hundreds of thousands of needy students. Those earnings, too, are counted as aid. Should a job — with the same hours and pay as, say, a Starbucks barista — be considered aid?

That kind of labeling, Senator Franken said, is misleading. “How many people think a loan is an award?” he asked. “How many think work-study is an award? What I discovered in doing round tables with students is that a lot of them said, ‘I didn’t realize what I was going to owe at the end of this.’ ”

Looking back, Ms. Constable says it was naïve but she, too, was shocked to learn aid meant loans. “One of the colleges told us, ‘You definitely qualify for more in grants but we don’t have it, so you just have to borrow more.’ ” Her family has all but stopped saving for the future, and they pinch pennies everywhere they can.

“If we just have to keep on taking out loans and loans and loans for all four kids, I don’t know how we would manage,” she said. “We thought if they want our kids, they’ll make it work. It turns out that just wasn’t true.”

Richard Pérez-Peña is a national correspondent for The Times covering higher education.

A version of this article appears in print on April 13, 2014, on Page ED18 of Education Life with the headline: What You Don’t Know About Financial Aid. Order Reprints|Today's Paper|Subscribe